Progressive Emu, Inc. v. Nutrition & Fitness, Inc. is mostly a dispute about paying for emu oil, but there’s also a trademark claim involved. In 2000 Progressive Emu began developing an emu oil pain cream and added blue coloring to it, “thus birthed ‘Blue Emu.'” Nutrition & Fitness (NFI) was then “brought on board to introduce Plaintiff’s cream to mass markets.” Progressive Emu disclosed the formula for the Blue Emu product to NFI under a confidentiality agreement. NFI placed its first order for “Super Strength Blue-Emu” on May 3, 2002 and that same day filed an application to register the trademark BLUE-EMU for “topical ointment for use in relieving joint or muscle pain.” A week later, the parties executed a Letter of Intent in which they agreed to jointly own “any current and future trademarks of products that contain [Progressive] Emu Oil.”

The parties then entered into a Sales and Marketing Agreement that expressly superseded the Letter of Intent. It did not mention anything about ownership of the BLUE-EMU trademark.* In a 2013 opinion, the court rejected Progressive Emu’s argument that it was half-owner of the BLUE-EMU trademark for a simple reason:

Pro Emu’s claim to partial ownership of the BLUE EMU trademark is ineffectual because the Letter of Intent was superseded in 2003. Pro Emu could have insisted otherwise. If it had done so, no one knows whether its insistence upon joint ownership would have created an insurmountable obstacle to the Agreement or the Agreement would have contained the language Pro Emu wants the court now to insert. If there were any doubt about the parties’ intent on this subject, Pro Emu has never objected to NFI’s claim of ownership of the trademark or asserted that it had any type of ownership interest during the parties’ eight year course of performance. Neither the Agreement nor any other agreement between the parties provides for joint ownership of the BLUE EMU trademark.

Progressive Emu thereafter changed course, amending its complaint to add a claim for cancellation of the BLUE-EMU trademark, by now incontestable, on the theory that NFI’s declaration that it was the owner of the mark, and that no one else had the right to use the mark, was fraudulent. Consider the timing of the application; NFI filed it the same day it ordered from Progressive Emu “Super Strength Blue-Emu” and shortly before entering into a Letter of Intent that said the trademark would be owned jointly.

To prevail on its fraud claim at trial, Plaintiff would need to establish by clear and convincing evidence that Guy [Defendant’s chairman] knew or believed that another organization had a right to use the mark. As a matter of law, Plaintiff has failed to produce evidence sufficient to meet this standard. Guy could not have known or believed that Plaintiff had a right to use the mark when Plaintiff actually had no such right, either by contract or under the common law.

First, Plaintiff did not have a contractual right to use the mark at the time of filing. Any contractual right could have only materialized when the parties executed a Letter of Intent, which did not occur until one week after Defendant submitted its registration application (and nearly a month after Guy executed the accompanying affidavit).

Plaintiff likewise did not possess a common-law ownership right in the Blue Emu mark when Guy submitted his registration application to the Trademark Office. Common-law trademark rights are appropriated only through actual prior use in commerce. This Circuit applies a two-part test to determine whether a party has demonstrated prior use. The party claiming a right must present evidence showing first, adoption, and second, use in a way sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind as those of the adopter of the mark. Here, Plaintiff allegedly invented the name “Blue Emu” and circulated it to potential partners, so the “adoption” prong of the prior-use test is satisfied for purposes of summary judgment.

Plaintiff’s right to the mark, however, collapses on the second prong, which requires “use in a sufficiently public way.” This Court has previously explained that the use prong was satisfied when “the distribution of the mark was widespread . . . , members of the targeted public actually associated the mark with the product to which it was affixed, the mark served to identify the source of the product, and other potential users of the mark had notice that the mark was in use in connection with the product.”

None of these factors is present here. The only sale at the time of filing was to Defendant itself, and that occurred on the day of filing. Plaintiff argues that this constitutes using the mark in commerce. Aside from the temporal issues with this argument, Plaintiff never actually distributed the product to the public. Indeed, it contracted with Defendant for the express purpose of selling the product on the mass markets. And the sale of goods to a partner fails to establish a common-law mark under this Circuit’s precedent….

In sum, Plaintiff cannot show that it had a right to the blue Emu mark when defendant submitted its trademark application.

There’s nothing wrong with the reasoning, it was an outcome that Progressive Emu allowed to happen by failing to nail down the trademark ownership in the agreement since it hadn’t established common law rights. But as the district court said, it may have been something that Progressive Emu knowingly conceded in negotiations because it couldn’t make a deal otherwise. Or it was an oversight, but we hew to the deals we strike, well-crafted or not.

Progressive Emu raised a licensee estoppel theory on appeal, but it wasn’t brought below so the appeals court didn’t entertain the argument.

* The agreement said that Progressive Emu “hereby grants to NFI, and NFI hereby accepts, an exclusive, non-transferable right and license to use the JEI trademarks listed in Exhibit A hereto.” There is no Exhibit A to the copy of the agreement available on PACER and no discussion by the court about whether BLUE-EMU might have been on it.

One Response to How to Steal a Trademark

Alex

July 25, 2016 at 1:38 pm

Such a classic case of an inventor or manufacturer not properly tending to the trademark issues when negotiating the agreement with the distributor. It seems like this happens all the time and we get to see those parties well after the fact as possible or actual clients. A simple ITU application on file in the USPTO by Progressive prior to any sales or dealings with NFI could have made a big difference.

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Ms. Chestek is admitted to practice in Connecticut, the District of Columbia, Massachusetts, New York and North Carolina and is Board Certified by the North Carolina State Bar's Board of Legal Specialization in Trademark Law.

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